Merchandise mix aids Brookstone, while Sharper Image stumbles

It was a tale of two different outcomes last week for specialty gift multichannel merchants Sharper Image and Brookstone.

Following years of declining sales, Sharper Image Corp. filed for bankruptcy protection under chapter 11 of the Bankruptcy Code in the US Bankruptcy Court for the District of Delaware. In contrasts, competitor Brookstone had a banner year, reporting a 12.6% gain in its fourth quarter net sales for a total of $288.5 million. Same-store sales increased 5.2% during the same period. For the fiscal year ended December 29, Brookstone said net sales increased 9.9% and same-store sales were up 5%. Direct marketing sales increased 33.3% in Q4 for a total of $78.3 million and 23% for the year, totaling $127.5 million.

Merchandise was the defining factor in the fortunes of each company, according to Cid Wilson, director of research at securities firm Kevin Dann & Partners LLC.

“At one point, 60 percent of Sharper Image's profits came from Ionic Breeze products,” he said. And when sales began to drop off a few years ago, Sharper Image was never able to find another product with a similarly high price point, turnover rate and margin.

Brookstone, on the other hand, “never had a product that made up more than 17% of its sales,” he continued.

Brookstone's merchandise mix is one reason for the company's strong performance, according to Robert Padgett, director of communications for the company.

“We've made a point of bringing in products that our customers want across a pretty wide selection,” he said, including more items with mass appeal.

Sharper Image made other mistakes, according to Wilson. It expanded its business several years ago based on the premise that sales for Ionic Breeze would continue apace and, once things started to go bad, it brought in a CEO with extensive direct marketing experience, Steven Lightman, instead of someone with proprietary product development.

On the flip side, Brookstone has taken calculated risks that seem to be paying off. At a time when many other catalogers are reducing circulation rate, Brookstone increased its circulation by 14.2% during the fourth quarter and 9.6% for the year. In the fall of 2006, Brookstone moved 100% of its prospecting to Abacus and, as a result, it has a predictable performance and driven down costs, enabling Brookstone to drop more catalogs and increase response rates.

The relationship with Abacus “has helped contribute to Brookstone's success with its outreach efforts to customers,” Padgett said.

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